If you are interested in investing, it can be daunting to dive right in. The activities in this topic give you a chance to examine your attitudes to investing and to test your investment strategies in a safe setting.
You probably already know more about how investing works than you realise. Have you ever played Monopoly™?
Have a discussion about playing the game:
- How do you feel when you play the game?
- Did you have a particular strategy or game plan that you liked to follow?
- Does a particular player seem to win more frequently than everyone else?
- Which properties do you like to buy? Why?
- Did you buy the railway stations and utilities, as well as properties?
- If you or any of the players ran out of cash, what was the consequence?
- What does your Monopoly™ experience tell you about investing?
Your answers to these questions will show that you already understand the following investing concepts:
- Asset classes
- The different investment types that you can buy – eg property, utilities and railways (infrastructure) – are all examples of asset classes.
- The reward or income from your investment – in this case, the rent received on properties
- Buying a mix of investments so you do not rely on just one investment to earn a return
- Risk and return
- Balancing when to pay for property, houses and hotels based on the income you expected to receive.
- Investment strategy
- The plan that you had
- Investment portfolio
- All the cash and investments (assets) that you held
- Being able to easily access cash
- If you needed cash you couldn’t sell your property at the original price – the bank only gave half the value of each property, and your opponents probably didn’t offer much more. It is not always easy to sell an investment at the price you want, when you want.
Discuss your thoughts about investment risks
- How do you feel about investment risk?
If you were to invest:
- How would you plan to cope financially with losses in your investments?
- How do you think you would cope emotionally and psychologically if your investments fell in value?
The Investment Club game
Create an investment club with your fellow Olaves and work out the mechanics of investing by creating a ‘paper’ investment portfolio i.e. not using actual money.
Assume the following scenario:
- You have savings and would like to start investing
- You don’t have any credit card debt, and also have an emergency fund in place that will cover at least 3 months of your regular expenses
- You have a long-term goal you are saving for and have decided that you want to invest in shares
Share prices move for a range of reasons. Some of these reasons are specific to a company, such as the appointment of a new CEO or the release of a product. Other reasons include changes in interest rates and exchange rates and new government regulations.
The game is played over two meetings:
- At the first meeting you will select the shares for your portfolio. If you don’t have access to the internet during this meeting, you will need to do some research at home to find out the information you will need
- At the second meeting you will look at how your shares have performed, looking at reasons why the share prices have moved up or down.
Meeting 1 – Selecting your investments
Select 2-5 companies whose shares trade on the Australian stock market.
As a starting point, some companies that may be familiar to you are:
- Your supermarket
- Your bank
- Your phone/computer/internet provider
- Your car/home insurance provider
- An airline
Note that not all companies trade on the Australian stock market.
If you don’t find them, they could be:
- Private companies which means they are owned by a few individuals
- Part of a large international corporation
You can check to see if your chosen company trades on the Australian Stock Market (ASX) on their website. Each company that trades on the ASX has a 3 letter code that makes it easier to use than the company’s full name.
Use the ASX website to find out the stock market codes for the following companies:
- BHP Billiton
- National Australia Bank
- QANTAS Airways
Download the Investment Sheet Template here, and record the names of the companies you have chosen, their share market codes and their last price.
From now until your next meeting, keep an eye on the news to see if the companies you have chosen are mentioned. You can track them on social media or watch/listen to finance segments on news bulletins. Bookmark links to any articles you have read. When you do hear/see/read the news, note down any major financial news that you think could also be relevant to your companies – for example:
- Has the Reserve Bank changed interest rates?
- Has there been an election either in Australia or overseas that has affected the share market?
- Has there been a specific announcement about your company?
- Have there been any management changes at the company?
- Have they released any new products?
- Has there been any news about their profitability?
Meeting 2 – Reviewing your investments
See how your shares have performed by checking the latest prices and updating the Investment Sheet Template.
Discuss the reasons for the changes in your companies’ prices. A simple search on the topic ‘share price movement for XXX’ where XXX is the Share Market code of your company, will help you to gain some knowledge about reasons for the movement of share prices.
It is important to review your investments regularly. You don’t want to be checking your investments so regularly that you are caught up in the daily movement of prices, but you do want to be checking them frequently enough to make sure that they are still on track to meet your expectations.
Meeting 2 – Lessons learned
Discuss your experience of the Investment Club game.
- Did your shares perform as you expected?
- How did you feel while watching the movement of the market?
- Think about how you would feel if this was your real money invested in these shares.
- Share prices do move up and down, particularly over the short term. Shares are a more appropriate investment for the long term i.e. 3-5 years.
- What lessons did you take from the game?
- Share prices move up and down for different companies at different times. By buying shares in a range of companies, you can spread your risk so that you are not relying on one company for all of your returns.
You could also play the ASX Sharemarket game.
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